Budget end to support for CHP will halt energy efficient generation, warns industry

Green policy news – by GreenWise staff

22nd March 2012

George Osborne’s decision to go-ahead and end long-standing incentives for combined heat and power (CHP) from next year will mean many businesses will be forced to switch off their plant – driving up energy costs and CO2 emissions – industry has warned.

The Budget report, yesterday, confirmed the Chancellor’s decision to end CHP plants’ exemption from the Climate Change Levy (CCL). The manufacturing industry, which had been lobbying to have the tax incentive reinstated for highly efficient CHP, warned the move would put jobs at risk, increase CO2 emissions and drive up energy costs.

"This is a setback for growth and a setback for the Government's green ambitions," Graham Meeks, director of the Combined Heat and Power Association (CHPA) said. "Across the country hundreds of businesses employing tens of thousands of workers are already facing the prospect of rising energy costs. For many, combined heat and power is their only realistic prospect of addressing this threat and controlling their carbon emissions. Today the Chancellor has taken this option off the table for the foreseeable future."

Carbon Price Floor

And the Chancellor’s headline announcement yesterday that CHP plants would be excluded from the carbon price support rate when the Carbon Price Floor takes effect from April 2013 wouldn’t make any difference, industry bodies claimed.

"The positive effect of not applying carbon price support charges to fuels used for combined heat and power is offset by the decision to remove the associated Climate Change Levy exemption certificates," Food and Drink Federation (FDF)’s director general Melanie Leech, said.

Steve Freeman, director of Environment and Energy affairs at the Confederation of Paper Industries, said: "We’re very disappointed that the Government has not listened to the representations that were made by industry."

According to the CHPA, 130,000 manufacturing jobs today depend on CHP for their energy. The technology works by generating electricity whilst also capturing usable heat that is produced during the process. It’s high efficient compared to coal and gas fired power stations, where up to two thirds of the overall energy consumed is lost. CHP now generates seven per cent of UK’s electricity, and according to the CHPA saves 13 million tonnes of CO2 a year and reduces gas imports by five per cent.

Doug Parr, chief scientist at Greenpeace said the Treasury’s decision not to continue supporting CHP was "incomprehensible".

"Providing good conditions for CHP is one of the things that Greenpeace and major industry can agree on. It is beneficial for the economy and the environment," he said.

Threat to competitiveness

The CHPA said the policy threatened competitiveness of manufacturers in the UK as well as security of supply of energy and carbon abatement goals and would mean more polluting power stations operating in the place of CHP.

Industry estimates that over half of the CO2 savings delivered by CHP are now at risk and that many manufacturers that already face competition from countries such as Germany, where investment in CHP is actively supported by Governments, are going to face more pressure to move abroad to remain competitive.

"The initiative now rests with the Secretary of State for Energy and Climate Change. Faced with the risks of rising CO2 emissions and growing energy costs for business he must seize the opportunity of Electricity Market Reform to secure the benefits that CHP is already delivering," Meeks said.

'Dash for gas'

Yesterday, the Chancellor put his full weight behind a 'dash for gas’. This will see the Government giving the go-ahead to a new generation of more polluting gas-fired power stations between now and 2045.

"Gas is cheap, has much less carbon than coal and will be the largest single source of our electricity in the coming years," he said.

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